Auto loans are considered secured, fixed debt – this means they’re a traditional type of loan with fixed payments and a finite amount to pay back. Add in the benefit of getting the set of wheels you need to get around and you have a good debt that can be a positive part of your healthy financial outlook… as long as you obtain a loan that works for you and make sure you’re managing auto loan debt effectively.
There are three good reasons to refinance an auto loan:
- Your financial situation has changes and you can’t comfortably afford the payments.
- You can qualify for a better interest rate (perhaps your credit score has improved).
- You want to consolidate higher interest debt into one easily managed low-rate monthly payment.
A lot of people don’t know that you can actually use the equity in your vehicle to consolidate your bills – just like your home’s equity. Auto loan rates can be a lot lower than the credit card debt and personal loans you’ve been accumulating. Just a quick conversation with Member Services will confirm how much money you’ve been driving around with. This takes some of the burden off being able to afford your bills by lowering your monthly payments.
As for auto rates being lower, the rate you qualify for initially is based on your credit score, but also on the national rates available when you apply. If rates drop after you get your loan, then you may want to refinance even if you credit score is the same as when you applied.
Using your car’s equity to consolidate higher interest debt
The average credit card interest rate is 16.12% (at the credit union, it’s as low as 9.9% APR* – just sayin). If you currently owe less than what your vehicle is worth, you may be able to access more cash by refinancing your auto loan and using the equity to pay off higher interest debts like credit cards.
For instance, if your credit card interest rates are 18% (the average rate pre-pandemic) and you can refinance your auto loan to something as low as 2.39%. You can use the equity in your vehicle to pay off your credit card debt. Not only do you end up with a lower interest rate, but you also reduce to a single monthly payment instead of 2 or more.
The don’ts of consolidating debt:
Don’t consolidate existing loans that have a lower interest rate than the rate of the new personal loan.
Don’t borrow more than you need to consolidate your personal and car loans.
Don’t continue to create new debt after you’ve consolidated your old debt.
Consolidating your auto loans and personal loans will definitely help you save time paying your monthly bills and reduce the hassle. It may also reduce your taxes or interest rate. Although it may not be possible for everyone, it’s worth looking into. Every situation is unique and with several consolidation options available, Member Services can help you get on the path to financial success and lower monthly payments. Set up a consultation today!